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Apple's appeal falters in China as iPhone 6 fails to impress

Apple fans queue up to get their new iPhone 6 in Beijing on Oct. 17.

BEIJING/SILICON VALLEY -- A lack of enthusiasm over the launch of Apple's newest iPhone in China bodes ill for the U.S. company, which is threatened by homegrown brands in the world's largest smartphone market.

     Apple released the iPhone 6 and iPhone 6 Plus there on Friday, hoping to continue expanding market share on the back of its potent brand power.

     The flagship Apple Store in Beijing's Wangfujing shopping district opened at 8 a.m. that day, two hours earlier than usual. A store clerk said 200 to 300 shoppers were expected before 10 a.m., but the long lines failed to appear, giving the numerous black-clad security guards little to do.

     That morning, an employee at a game company bought a 128-gigabyte model for 6,888 yuan ($1,124) after waiting about 30 minutes at the store in Sanlitun, a fashionable shopping district popular among young people. "I've used the iPhone 4 and 5s and I like the big screen on the new one," said the 20-year-old.

Three weeks late

However, even at the Sanlitun store, the crowd numbered in the dozens. This contrasts sharply with the past, when hundreds waited overnight to get their hands on the latest iPhone. Seeing a smaller, more subdued crowd waiting quietly on line as store workers blared out their welcome, an onlooker remarked, "Apple fans aren't as passionate as before."

     Apple has been happy about sales. "These iPhones have become the fastest-selling iPhones in history," Apple Chief Executive Officer Tim Cook said at a Silicon Valley news conference Thursday. "And in the first 30 days, we've set a new high-water mark for the most orders taken."

     Apple received 20 million pre-orders for the iPhone 6 in China over the first three days from Oct. 10, double the comparable figures in the U.S., Europe and Japan. Cook noted that pre-orders "set a new record" for China.

     However, some industry insiders are concerned over Chinese sales, arguing that the new iPhone lacks the "wow" factor. A 35-year-old worker at a telecommunications company who has bought five iPhones since the 3G said, "I'm a loyal Apple fan, but the [iPhone] 6 has evolved too little."

     The U.S. company had to negotiate some twists and turns before releasing the smartphone in China. The planned Sept. 26 launch date was delayed by three weeks because local authorities refused to grant approvals, citing security issues with Apple products. Consequently, Apple was unable to introduce the handset in time for the National Day shopping season in early October.

Slashing subsidies

Another factor hurting Apple is that the Chinese government instructed telecom companies to gradually reduce promotional expenses for smartphones. Subsidies paid by the large carriers, estimated at 200 billion yuan combined last year, are projected to shrink about 30% over the long term. In China, telecom companies are said to cover more than $350 of the price of each iPhone. The reduction in subsidies, therefore, will hit Apple hard since its phones are expensive.

     The biggest threat the U.S. company faces, however, is the growth of such brands as China's Xiaomi, which sell smartphones that resemble the iPhone at about half the price. Xiaomi held a 2.5% share of the Chinese market in the April-June quarter of last year, but has since surged to second place with 13.5%, surpassing Apple, whose share grew to 6.9%. Chinese brands Lenovo, Coolpad and Huawei all hold larger market shares than Apple.

     One way Apple is dealing with the rapidly shifting market is to keep older models in its lineup. When the iPhone 6 debuted in China, Apple lowered the prices of the iPhone 5s and unpopular iPhone 5c to about 85% and 62%, respectively, of the latest version. By closing the price gap with homegrown smartphones, Apple aims to secure sales volume. It is also reportedly considering selling used models.

     Cook said that selling older models will broaden the company's customer base and raise demand for applications. But Xiaomi, which is also placing priority on expanding its customer base to profit from apps, has been boosting sales at a faster clip than Apple. According to U.S. market research company Flurry, users of Xiaomi smartphones spend 7% more time using apps that those using iPhones.

     The Chinese smartphone market is projected to keep growing, with sales seen topping 500 million units by 2016. But competition is heating up, and even industry leader Samsung Electronics of South Korea has been losing market share. Amid stronger headwinds, Apple faces an uncertain future over whether it can capitalize on its brand power.

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